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Balancing Between Free Market & Social Justice: Lessons From China

Without superficially imitating other countries, drawing lessons from any country would be useful for a developing country like Sri Lanka given the common nature of many challenges that developing or transforming countries are faced with. It is not only because of the ancient historical links, dating back to Fa Hein’s visit to the island in the 5th century AD, that China is important to Sri Lanka, in this endeavour, but also because of the contemporary commonalities or more precisely, China’s unequivocal support to the country’s development.

The purpose of this article however is not so much to talk about those commonalities or the support given, but to draw possible policy lessons from China for a particular challenge that Sri Lanka is facing at present. That is about how to balance between the ‘free market policies’ and the ‘objectives of social justice,’ not to speak of socialism. It is not only from the Belt and Road Initiative (BRI) that Sri Lanka should benefit, but also from China’s exemplary development experience.

Background

China and Sri Lanka are two developing countries that opened up their economies under the new free market and globalization trends in late 1970s. China was a socialist country and Sri Lanka was a quasi-welfare state, although in its constitution it became characterized as ‘socialist’ in 1978. Both countries apparently realized that without developing the productive forces (capital, entrepreneurship, labour, technology, land etc.), the economies cannot be developed or socialism could not be built. The latter was a basic premise of original Marxism and also contemporarily advocated by the social democracy movements.

In order to develop the underdeveloped economies, market mechanisms are of paramount importance whether you do it under the guidance of the state (socialist and/or nationalist) or without it (neo-liberal orthodoxy). China selected the first model as a socialist country and Sri Lanka had been quite ambiguous on the matter, and has faltered in many respects even during 1994 and 2005 (open economy with a human face).

Since 1980s, China has developed immensely, also admittedly creating internal contradictions, but Sri Lanka could not achieve much progress although the initial growth was commendable (1978-82). Of course China’s success or Sri Lanka’s ‘failure’ cannot purely be explained in terms of state policies. China is a resource rich big country with a hardworking people and long standing entrepreneur skills, compared to Sri Lanka. Sri Lanka also faced a protracted civil war between 1983 and 2009 and the wounds are still not healed. Sri Lanka did achieve a significant progress after the war (2010-2013), primarily through one-sided state intervention and infrastructure development, but – apart from top politicians eating into the benefits – it was mainly on the basis of immense external debt. This was not at all the case in China.

A Revolution Betrayed?

When a major governmental change was achieved in 2015, dubbed as a ‘revolution’ by some, the expectation was not only political, but also economic and social. That was the meaning of the movement led by Ven. Maduluwawe Sobitha, the National Movement for Just Society (NMJS), supported by various organizations and radical trade unionists. That was also the reason, I believe, why certain sections of the Left supported the government, unless they have themselves become ‘neo-liberal.’

Although there was a misplaced cry for a ‘single issue’ for the abolition of the executive presidency, ‘social justice’ in all respects was the people’s expectation judging by the election issues and results between January and August 2015. Because, under the overall free market policies since 1978, the gap between the ‘rich’ and the ‘poor’ as well as the ‘urban and the ‘rural’ has considerably widened. Under a parallel form of ‘state capitalism,’ side by side with the free market, the politicians had themselves become rich and ‘capitalists’ without serving the people and addressing the needs of their economic upliftment. Therefore, the people directly and indirectly expected a radical policy change after 2015.

When the government initially declared a policy of a ‘social market economy,’ although it was well below the expectations, it nevertheless was considered a progress because it ostensibly emphasized the ‘social’ aspect. Similarly, when a national unity government was formed between the UNP and the SLFP, it was also a welcome initiative because the people and the observers expected the best of both parties/polices for the betterment of the people and the country.However, the Vision 2025 or the Budget 2018 does not fulfil these expectations. Instead of social market polices, both are tilting towards ‘neo-liberalism’ equally in words and deeds. This is why a course correction is necessary for the government or the unity between the SLFP and the UNP.

Economic Visions

Since the workers and peasants revolution in 1949, China has always been modest and down to earth, whatever the mistakes or adventures it has made in the course of its development. The present Chinese President, Xi Jinping, himself was a victim of the ‘cultural revolution,’ but he has not made a big issue out of it for the sake of personal glory or confrontational politics. This modesty or realism is also characteristic of their future economic vision/s.

Deng Xiaoping was the key figure who opened up the Chinese economy in 1978 to the world, but he never held a key state position other than within the party or consultative councils. But he and others of the second generation of leaders ensured that they ‘walk the talk’ or their vision, dedicated to the country’s and people’s development. As a result of this pragmatic opening up, the country has managed to uplift hundreds of millions out of poverty other than making China a vibrant economy, the second largest in the world today. He is also the initial author of the concept ‘socialism with Chinese characteristics.’ They never gave up the socialist principles.

The subsequent two leaders, Jiang Zemin (1993-2002) and Hu Jintao (2002-2012), were the same. They served as Presidents of the country, but never exceeded two terms. Jiang Zemin was particularly instrumental in broadening the democratic base of the country, other than strengthening the economy. Hu Jintao while initiating new moves to equalize the Chinese society, extended assistance to other developing countries particularly in Africa and Asia. After his two terms, he resigned from all official positions at the age of 70, except remaining in the party.

By a happy coincidence, Sri Lanka’s Vision 2025, coincides with China’s Vision 2025 that the current President, Xi Jinping, has unveiled. However, Sri Lanka’s vision suddenly wants to become ‘rich’ and ‘prosperous’ by 2025, whether the actions of the government would match the vision or not. The Chinese vision is to build a ‘moderately prosperous society.’ More importantly, it emphasizes that it would be in ‘all respects’ to mean balanced and equitable prosperity. It is in this context that Xi Jinping’s Report to the Communist Party congress on 18 October 2017 is important for our scrutiny.

Chinese Vision/Action Plan

What Xi Jinping has unveiled is rather an action plan than just a vision. This is something lacking in Sri Lanka with so many, rather contradictory, policy statements. Even the Budget 2018, appears more of a policy statement than a financial blueprint except in announcing ‘extensive liberalization’ rather than a pragmatic policy on liberalization or free market policies.

It is undoubtedly a difficult task to keep a balance between ‘free market’ polices and ‘social justice’ even for China. That is why a critical assessment of the past five years (2012-2017) had preceded Xi Jinping’s ‘vision and plan’ for the immediate and foreseeable future in the Report. It was also heartening to note, in his speech, whenever he was saying the ‘Chinese people’ he has almost always added ‘of all ethnic groups.’

During that 13th Five Year Plan (2013-2017), the GDP has grown from 54 trillion to 80 trillion yuan. That is not a mean achievement. China has promoted supply-side structural reforms, giving priority to infrastructure development and agricultural modernization. Regional development has become more balanced. Our Financed Minister could have learned more by reading Xi Jinping’s Report than solely depending on ‘neo-liberal’ policy advisors in formulating his ‘Budget’ to Sri Lanka! Xi Jinping has outlined the advances in the digital economy and progress in the science and technology.

China has not at all given up ‘economic globalization,’ ‘open economy’ or ‘market modernization.’ The following is what it says about the role of the market.

“We must see that the market plays the decisive role in resource allocation, the government plays its role better, and new industrialization, IT application, urbanization, and agricultural modernization go hand in hand. We must actively participate in and promote economic globalization, develop an open economy of higher standards, and continue to increase China’s economic power and composite strength.”

It should however be noted that what it says, at present, is ‘economic globalization.’ It says, ‘the market plays a decisive role in resource allocation and facilitates the role of the government better.’ All other aspects necessary for economic development, ‘new industrialization,’ ‘IT application,’ ‘urbanization,’ and most importantly ‘agricultural modernization’ go hand in hand, according to the statement. But this holistic approach is conspicuously absent in many of the Sri Lanka’s policy statements or budgets.

Public Private Partnership

In the case of Sri Lanka, what is promoted is a single engine growth, everything assigned to the ‘private sector.’ This is not the case in the economically growing China. Also in Sri Lanka, the ‘private sector’ is understood in a very narrow sense. Apart from the private sector being still underdeveloped or limited, it is also understood or treated within a close circle of ‘family, school friends or party cohorts.’

The private sector in rural areas are called ‘Mudalalis’ in a derogatory sense. This narrow perception is also one reason why ‘foreign’ companies are always preferred to local ones. It is not a pragmatic policy of inviting FDI, but mostly a cultural policy in despising always the ‘local’ or the ‘national.’ Obviously, there is the other extreme of ‘patriotism’ in narrow thinking, even rejecting weather reports from overseas!

The following is what Xi Jinping’s Report states about the ‘PPP.’

“There must be no irresolution about working to consolidate and develop the public sector; and there must be no irresolution about working to encourage, support, and guide the development of the non-public sector.”

This is about a determination to develop both engines, the public and the private, in order to develop the country. In the case of the public sector, it is about ‘consolidating’ and ‘developing.’ In the case of the private sector, which he termed as the ‘non-public sector’ to include the growing non-governmental organizations, it is about ‘encouraging,’ ‘supporting,’ and ‘guiding.’

China has not reversed its policy of further encouraging FDI or free trade with other countries in order to achieve both national as well as international objectives. The Report most often has used the term ‘liberalization,’ not in the ‘neo-liberal’ sense, but in a more progressive and a pragmatic sense. It is in the same perspective that China has launched its Belt and Road Initiative.

People Centred Development

Most importantly, China talks about a ‘people centred development’ incorporating environmental protection and social justice. This is partly because when an economy is opened up, and when the market is used in resource allocation, and also when the private sector is given equally a prominent place, there can emerge considerable imbalances, vast inequalities and regional unevenness. This is the same in Sri Lanka or in China. Therefore, the following is what the Report says in ameliorating the situation.

“It makes clear that the principal contradiction facing Chinese society in the new era is that between unbalanced and inadequate development and the people’s ever-growing needs for a better life. We must therefore continue commitment to our people-centred philosophy of development, and work to promote well-rounded human development and common prosperity for everyone.”

The main elements of this ‘people-centred philosophy of development’ are about (1) a ‘well-rounded human development’ and (2) ‘common prosperity for everyone.’ There are so many other social justice and welfare issues that the Report has covered.

Conclusion

China is considered a ‘non-democratic’ country, whether the characterization is completely correct or not. Sri Lanka is boastfully a democratic country; even ‘sovereignty is in the people and is inalienable.’ Therefore in principle, a democratic country should give more priority to ‘people centred development’ than a non-democratic country.

If that is not the case, there should be a major contradiction or paradox that needs to be addressed and corrected through a joint and a painstaking (not delayed) effort. Why popularly elected governments cater only for a small rich class? Is it because of believing in the ‘trickledown’ effect? For how long that the poor people have to wait for the ‘trickles’ to come down?

No one should say, down with the capitalists (danapathiya bhangawewa), like the old left cried. The role of the private sector should be appreciated and supported. However, the priority should be given to a ‘people centred development.’ Perhaps the national unity government of the two main parties (the UNP and the SLFP), with apparent different perspectives, might be best placed for resolving this predicament, through negotiations and compromises with the other progressive parties and sections within and outside parliament also playing a major role.

Latest comments

Jim softy/December 4, 2017

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Your discussion is irrelevant as the present situation in Sri lanka is very different. Just understand, if Sri lanka can not grow it’s staple food enough for the country, If it can not grow chillie, onion, potato like important vegetables inside the country, how can you talk about economic development. Because, the country is bleeding as it can not grow it’s food. then take the politicians to see what kind of destruction they do. Every body blamed the previous govt which is true. Now, see what is happening to all the banks because of the bond scandle. they are bleeding. Then think the caliber of politicians Bandula gunawardane says because of Sake Production by Arjun Aloesius, Srilanka rice prodiction is impacted. But Sri lanka over produce rice when they can and Sake needs sticky rice which the Sri lankan people do not consume. Then the next thing. MAithripala sirisena is buying a ship ($135 million) to make Putin Happy, HE also has approved a surveying contract for USA company $ 154 million by passing the dept of Survey. That loan is 3.0% above the US retail loan for the best customer (1.0%) and after that Sri lanka has to spend Rs 400 million each year to maintain it. For whose benefit is the next question. So propose a economic plan to fit these problems.

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Amarasiri/December 5, 2017

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Dr. Laksiri Fernando,

When will you write the Sri Lankan Version of the Common Sense Phamplet, so that the populace will know, and can sing…..

Common Sense is a pamphlet written by Thomas Paine in 1775–76 advocating independence from Great Britain to people in the Thirteen Colonies. Written in clear and persuasive prose, Paine marshaled moral and political arguments to encourage common people in the Colonies to fight for egalitarian government. It was published anonymously on January 10, 1776, at the beginning of the American Revolution, and became an immediate sensation.

Common Sense made public a persuasive and impassioned case for independence, which before the pamphlet had not yet been given serious intellectual consideration. He connected independence with common dissenting Protestant beliefs as a means to present a distinctly American political identity, structuring Common Sense as if it were a sermon.[ Historian Gordon S. Wood described Common Sense as “the most incendiary and popular pamphlet of the entire revolutionary era”.

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Closer state to draw lessons from is Singapore. China is not an example to follow as its people are different and its size is not comparable. One factor is corruption which does not belong to any ideology. China has it with its princelings of whom Xi Jinping himself is one. Singapore also has family succession but its record of official corruption is almost nil. Singapore does not operate a free market economy. Transport, electricity, water, press, television, the fabulous airport are run by the state. Singapore airlines, Development Bank of Singapore are nominally private and competition in the areas is not favoured. In other areas there is free competition. It is this mix that Sri Lanka must aim at. More importantly, ethnic peace is kept – by force in Singapore if necessary. But, force is not necessary as it is carefully cultivated. Ethnic peace and absence of corruption are preconditions, whatever the economic philosophy is. That is the lesson for Sri Lanka- not any economic or political theory. Han China is not an example.

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